Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry individuals looking for phase-in duration anticipate steady introduction

Industry faces technical difficulties and cost issues

Government financing problems occur due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has sustained concerns it could suppress international palm oil products, looks significantly likely to be executed gradually, experts stated, as industry participants seek a phase-in duration.

Indonesia, the world's greatest manufacturer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually a dive in palm futures and may press prices even more in 2025.

While the federal government of President Prabowo Subianto has said repeatedly the strategy is on track for complete launch in the new year, industry watchers say expenses and technical difficulties are most likely to result in partial implementation before full adoption throughout the sprawling island chain.

Indonesia's most significant fuel seller, state-owned Pertamina, said it needs to customize some of its fuel terminals to blend and keep B40, which will be completed during a "shift duration after government develops the mandate", representative Fadjar Djoko Santoso told Reuters, without offering details.

During a conference with federal government authorities and biodiesel manufacturers recently, fuel sellers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in attendance, told Reuters.

Hiswana Migas, the fuel sellers' association, did not right away react to a demand for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate hike would not be executed slowly, and that biodiesel manufacturers are ready to provide the greater mix.

"I have actually confirmed the readiness with all producers last week," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has not released allocations for producers to offer to fuel retailers, which it typically has done by this time of the year.

"We can't deliver the products without purchase order documents, and purchase order files are gotten after we get contracts with fuel business," Gunawan informed Reuters. "Fuel companies can just sign agreements after the ministerial decree (on biodiesel allotments)."

The federal government prepares to designate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the greater blend could likewise be a difficulty as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses proceeds from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% increase in subsidies to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking is impending.

However, the palm oil market would challenge a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the industry, including palm smallholders.

"I think there will be a delay, because if it is executed, the aid will increase. Where will (the cash) come from?" he said.

Nagaraj Meda, managing director of Transgraph Consulting, a commodity consultancy, stated B40 implementation would be challenging in 2025.

"The application might be slow and progressive in 2025 and most likely more busy in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the required further to B50 or B60 to achieve energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)